Working Papers (SMG) Udgivelsesår

Matching Heterogenous Open Innovation Strategies with Business Model Dimensions

Saebi, Tina; Foss, Nicolai J.(Bergen, 2014)

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Resume:

Research on open innovation suggests that companies benefit differentially from
adopting open innovation strategies; however, it is unclear why this is so. One
possible explanation is that companies’ business models are not attuned to open
strategies. Accordingly, we propose a contingency model of open business models
by systematically linking open innovation strategies to core business model
dimensions, notably the content, structure, governance of transactions. We further
illustrate a continuum of open innovativeness, differentiating between four types
of open business models. We contribute to the open innovation literature by
specifying the conditions under which business models are conducive to the
success of open innovation strategies.

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We draw on the complementarity literature in economics and management research
to dimensionalize business models innovations. Specifically, such innovation can be
dimensionalized in terms of the depth and the breadth of the changes to the
company’s business model that they imply. In turn, different business model
innovations are associated with different management challenges and require
different leadership interventions to become successful.

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Among the many seminal contributions of Ronald Coase, founding property rights
economics is a truly major one. This approach impacted a number if fields in economics
in particularly the 1960s and 1970s, but gradually lost influence. What is called property
rights economics in modern economics, mainly originated by Oliver Hart, is very
different from the original property rights economics of Coase, Demsetz, Alchian,
Cheung, Umbeck, Barzel, etc. in terms of analytical style and explanatory scope. Based
on our earlier work on the subject (Foss and Foss, 2001), we argue that the change from
Mark I to Mark II property rights economics led to Kuhnian loss of content. This is
related to the strong assumptions concerning the definition and enforcement of ownership
rights made in the latter approach which leads to many real life institutions and
governance arrangements being excluded from consideration.

Agency theory studies the impact of and remedies to asymmetrically distributed
information in principal-agent relations. Yet, it does so in a surprisingly binary
manner: It assumes the principal to be perfectly knowledgeable of some pieces of
information (such as the agent’s risk aversion), while others (such as the agent’s
true effort exerted) are considered to be perfectly private information of the agent.
Agency theory thus makes very asymmetrical assumptions about the knowledge
of principals and agents, largely neglecting the human capacity for interpersonal
sense-making. This chapter explores the implications of instilling agency theory
with a more realistic account of the human capacity to read other people’s desires,
intentions, knowledge, and beliefs—that is, to have a theory of someone else’s
mind.

Based on interviews in LEO Pharma, UCB Pharma and Novo Nordisk, we document how
deep-seated changes in the pharmaceutical industry related to increasing demands from payers,
the strengthening of the role of patients, changing legal demands, and declining technological
opportunity, drive a process of experimenting with business model. We distinguish between
three ideal types, namely a traditionalist model (exemplified by Novo Nordisk), the full-blown
service-oriented model (UCB Pharma) and the in-between model (LEO Pharma). We describe
the changes to the organizational design and management processes that accompany the
ongoing process of changing business models in these firms.

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Corporate failures, periodic recessions, regional debt crises and volatile financial markets have
intensified the focus on risk management as the means to deal with turbulent conditions. The ability to
respond effectively to abrupt environmental impacts is considered an important source of competitive
advantage. Yet, surprisingly little research has analyzed whether the presumed advantages of effective
risk management are associated with superior outcomes. Here we present a comprehensive study of
risk management effectiveness and the relationship to corporate performance based on more than
33,500 observations in 3,400 firms over the turbulent 20-year period 1991-2010. Determining effective
risk management as the ability to reduce earnings and cash flow volatility, we find that both have
significant positive relationships to lagged performance measures after controlling for industry effects,
company size and financial leverage.

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Major corporate failures, periodic recessions, regional debt crises and volatile markets have intensified
the focus on corporate risk management as the means to deal better with turbulent business conditions.
Hence, the ability to respond effectively to the often dramatic environmental changes is considered an
important source of competitive advantage. However, surprisingly little research has analyzed if the
presumed advantages of effective risk management lead to superior performance or assessed important
antecedents of effective risk management capabilities. Here we present a comprehensive study of risk
management effectiveness and the relationship to corporate performance based on panel data for more than 3,400 firms accounting for over 33,500 annual observations during the turbulent period 1991-
2010. Determining effective risk management as the ability to reduce earnings and cash flow volatility,
we find that it has significant positive relationships to lagged performance measures after controlling
for industry effects and company size. We also find that availability of slack resources and investment
commitments affect the risk management capabilities and their relationship to performance.

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Agency theory studies the problems and solutions linked to delegation of tasks from
principals to agents in the context of conflicting interests between the parties. Beginning from
clear assumptions about rationality, contracting and informational conditions, the theory
addresses problems of ex ante (“hidden characteristics”) as well as ex post information
asymmetry (“hidden action”), and examines conditions under which various kinds of
incentive instruments and monitoring arrangements can be deployed to minimize the welfare
loss. Its clear predictions and broad applicability have allowed agency theory to enjoy
considerable scientific impact on social science; however, it has also attracted considerable
criticism. [99 words]

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Austrian economics focuses on markets, but has much to say about organizations. In
particular, Austrian insights on the structure of production, the heterogeneity and
subjectivity of resources, the nature of uncertainty, the role of monetary calculation,
and the function of the entrepreneur provide solid foundations for a distinctly
Austrian theory of organizations. We review these insights, discuss recent literature
on Austrian economics and the theory of the firm, and suggest new directions for
developing and extending an Austrian approach to organizations.

Research highlights the role of external knowledge sources in the recognition of strategic opportunities, but is less forthcoming with respect to the role of such sources during the process of exploiting or realizing opportunities. We build on the knowledge-based view to propose that realizing opportunities often involves significant interactions with external knowledge sources. Organizational design can facilitate a firm’s interactions with these sources, while achieving coordination among organizational members engaged in opportunity exploitation. Our analysis of a double-respondent survey involving 536 Danish firms shows that the use of external knowledge sources is positively associated with opportunity exploitation, but the strength of this association is significantly influenced by organizational designs that enable the firm to access external knowledge during the process of exploiting opportunities.

Scholars increasingly seek to proffer microfoundations for macro management theory, notably strategic management theory. These microfoundations naturally revolve around human resources. We argue that proper microfoundations for strategic management theory must recognize that the management of motivation is first and foremost a matter of the management of cognitions of organizational members, an insight that we found in goal-framing theory, an emerging perspective based on cognitive science, behavioral economics, and social psychology. Building on this insight, we argue that a key reason why strategic goals matter to firm performance──that is, firm-level value creation and value capture and sustained competitive heterogeneity──is that such goals influence value creation rooted in employee motivations. Unfolding this idea allows us to generate new insight in the relations between value creation, strategic leadership and strategic goals.

In this book chapter we describe how Denmark’s eight universities have developed their supply of entrepreneurship education during the past three years. The governmental initiatives that aim to promote entrepreneurial universities, and the Danish context, are presented and related to this development. An assessment model of entrepreneurship education which includes the wide scope of dimensions important to education in the topic, such as content dimensions, stages in the entrepreneurial project and pedagogical dimensions is presented. By applying this model we have been able to analyse the strengths and weaknesses in the supply of entrepreneurship education at the eight universities.
The results show that the Danish universities have developed well regarding entrepreneurship education, especially on the pedagogical dimensions which means that more courses are becoming through and for entrepreneurship, rather than about entrepreneurship. The dominance of universities with business schools do, however, suggest that entrepreneurship education in Denmark is far from reaching maturity. Our results also suggest that it is important to focus on how to sustain the supply of entrepreneurship education rather than just invest in new course development.

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We briefly survey Hayek’s work and argue for its increasing relevance for organizational scholars. Hayek’s work inspired aspects of the transaction cost approach to the firm as well as knowledge management and knowledge-based view of the firm. But Hayek is usually seen within organizational scholarship as a narrow, technical economist. We hope to change that perception here by pointing to his work on rules, evolution, entrepreneurship and other aspects of his wide-ranging oeuvre with substantive implications for organizational theory.

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The Role of Mentalizing for Reward Design and Managenemt in Principal-Agent Relations

Foss, Nicolai J.; Stea, Diego(Frederiksberg, 2013)

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Agency theory is one of the most important foundational theories in management research, but it rests on tenuous cognitive assumptions. We combine classical agency theory with a realistic theory of the intrinsically imperfect human potential for interpersonal sensemaking. This allows us to systematically show how the principal’s ability to mentalize with the agent influences value creation in principal-agent relations, and to link this to organizational sensemaking instruments.

This paper attempts to fill this gap in the literature by focusing on the influence of knowledge senders’ willingness to share knowledge, their disseminative capacities and the knowledge-transfer opportunities they create on the effectiveness of knowledge transfer. We develop a theoretical framework that examines the impacts of key knowledge-senders’ abilities and behaviors on the knowledge-transfer process. We test our theory using survey data collected from 199 South Korean IJVs. We find that the willingness of foreign parent firms to share knowledge is manifested in their efforts to increase their abilities to articulate and codify knowledge, and to apply those skills to the codification of knowledge relevant to their IJVs. A willingness to share knowledge also plays a role in increasing the opportunities for two-way interactions, especially face-to-face interactions between the parents and their IJVs. The impact of the abilities of foreign parent firms to articulate and codify knowledge for transfer is mediated by the efficacy of their organizational communication systems. We also find that the opportunities created for the transfer of explicit knowledge have a significant impact on such transfers. However, opportunities for transfer of tacit knowledge only have an impact when senders and receivers have similar products and technologies.

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The notion of “capability” has long been influential in management research as an
approach to address firm-level heterogeneity and heterogeneity in competitive
outcomes. I discuss how recent advances in economics may allow for a more rigorous
understanding and measurement of capability that take organizational practices into
account. However, economists may also learn from work on capabilities in management
research.

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In this book chapter I present a multidimensional entrepreneurial self-efficacy (ESE) scale. The scale builds on three established ESE-scales, but the reliability of it is improved compared to the original three scales as the highly discipline-specific jargon is transformed to a more neutral wording of the items. The scale has been tested in a large scale survey including 445 students from twelve different programmes at three universities in Denmark and one university in Sweden. Exploratory factor analysis (EFA) has been applied in order to investigate the multidimensionality of the items in the scale, and confirmatory factor analysis (CFA) has been applied to investigate its convergent, discriminatory and nomological validity. The results demonstrate support for a multidimensional ESE-scale with high predictive validity regarding entrepreneurial behaviours and with high reliability as the items are comprehensible to respondents, regardless if they have entrepreneurial experience or not. The scale can thus be used in programme evaluations that include control groups or other type of individuals that lack entrepreneurial experience.

I present an analysis of a survey in which the effect of entrepreneurship education and project-based education on students at lower secondary level is investigated. The results are based on a random sample of 2000 Danish students. The analysis indicates that entrepreneurship education has a positive effect on students’ personal development, and that its effect on entrepreneurial intentions is fully mediated by its effect on students’ self-conception. A finding with important policy implications is that there is a negative interaction effect between entrepreneurship education and project-based education regarding impact on students’ self-conception. The implication of the results is that we should replace project-based education with entrepreneurship education rather than having them run in parallel.

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We survey, organize, and discuss the literature on the role of organizational practices
for explaining innovation outcomes. We discuss how individual practices influence
innovation, and how the clustering of specific practices matters for innovation
outcomes. Relatedly, we discuss various possible mediators of the HRM/innovation
link, such as knowledge sharing, social capital and network effects. We argue that the
causal mechanisms underlying the HRM/innovation links are still ill-understood, calling
for further research.

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Strategic entrepreneurship is a newly recognized field that draws, not surprisingly, from the fields of strategic management and entrepreneurship. The field emerged officially with the 2001 special issue of the Strategic Management Journal on “strategic entrepreneurship”; the first dedicated periodical, the Strategic Entrepreneurship Journal, appeared in 2007. Strategic entrepreneurship is built around two core ideas. (1) Strategy formulation and execution involves attributes that are fundamentally entrepreneurial, such as alertness, creativity, and judgment, and entrepreneurs try to create and capture value through resource acquisition and competitive posi-tioning. (2) Opportunity-seeking and advantage-seeking—the former the central subject of the entrepreneurship field, the latter the central subject of the strategic management field—are pro-cesses that should be considered jointly. This entry explains the specific links between strategy and entrepreneurship, reviews the emergence and development of the strategic entrepreneurship field, and discusses key implications and applications.